Note: Today’s post takes a look at the the performance of the top 10 Canadian mutual funds (by assets) of 2004 over the next five years. The results simply confirm yesterday’s conclusions about the performance of top 10 global equity funds over the next five years, so feel free to skim over the results.
In yesterday’s post, we saw Ted disheartened with his results when he invested $10,000 each in the top 10 global equity mutual funds (by assets) of 2004. It so happens that Ted had also invested $10,000 each in the top 10 Canadian Equity Mutual Funds (by assets) of 2004. He had read news reports on Mackenzie Financial’s research that showed seven out of 10 beating the index. Even more impressive, every one of those funds beat the iUnits S&P/TSX 60, as XIU was called then.
Fast forward five years and Ted is curious to find out how his picks have fared against the benchmark. He has a flicker of hope. Yes, yesterday’s investigations were a bit disappointing but surely the Canadian mutual funds would bring home the bacon. After all, the five year period between July 2004 and August 2009 was a good time to own Canadian stocks. A $10,000 investment in the TSX Composite would have grown into $14,600. Here’s how Ted’s funds fared:
| Fund | Fund Market Value | Difference with Index | New Top 10 Rank | MER |
|---|---|---|---|---|
| Ivy Canadian | $9,606 | (34%) | 9 | 2.4% |
| Trimark Select Canada Growth | $11,034 | (24%) | 10 | 2.3% |
| RBC Canadian Equity | $13,258 | (9%) | 5 | 2.4% |
| AIC Diversified Canada | $9,779 | (33%) | NITT* | 2.5% |
| Fidelity True North | $14,217 | (3%) | NITT* | 2.4% |
| Investors Retirement Growth | $13,294 | (9%) | NITT | 3.0% |
| CI Harbour | $14,964 | 2% | 2 | 2.3% |
| AGF Cdn Large Cap Div | $13,585 | (7%) | 7 | 1.8% |
| Fidelity Cdn Growth Companies | $11,349 | (22%) | NITT* | 2.2% |
| AGF Canadian Stock | $12,907 | (12%) | NITT* | 2.4% |
NITT = Not in Top Ten
Source: Globefund.com mutual fund database
Unfortuntely, Ted’s hopes are dashed once again. But, at least, he isn’t surprised any more with his findings:
- 9 out of 10 funds trailed the index.
- 5 out of 10 funds trailed by more than 10%.
- One fund beat the index by a measly 2%.
- None of the funds beat the index by more than 10% over five years.
- 5 out of 10 funds have dropped out of the top 10 Canadian Equity Funds (by assets) of 2009.
- If anything the data may understate the underperformance because the effect of sales loads is not considered.
- The equally-weighted investment in all the 10 funds underperformed the benchmark by a cumulative 15.1% or an annualized 3.22%.
- The average MER (not including any sales loads) of the funds is 2.4%.
Naturally, Ted wonders if he’d have done as well with an index fund. There were no ETFs that tracked the TSX Composite in July 2004 but the TD Canadian Equity Index e-Series fund was available back then. If Ted had invested his savings in the e-Series Fund, he’d have trailed the index by a cumulative 1.8% over the next five years, which just about equals the fund’s annual 0.31% MER. In other words, he’d still have better returns than 9 of his 10 picks.
Ted is now convinced that the funds on the list got there because of their outperformance, which (a) grew the assets already in the fund and (b) attracted a flood of new money due to the recent outperformance. Such lists are rife with survivorship bias and have no predictive ability whatsoever.
